The deal is unique for the Russian market because of the use of blockchain technology for settlements. Under the deal structure, the issuer, central depositary and investor gain access to a de-centralized platform where settlements are made.
Work on a prototype of the platform for bond transactions began in Q1 2017. The project successfully resolved the issue of keeping the securities records secure. It also factored in the requirements of Russian regulations relating to the securities market.
The system works exclusively with digitized assets, making the process of bonds placement and circulation and the accounting for transactions as transparent and simple as possible. Each of the deal participants can exchange documents in real time and track transaction status. Use of cryptographic protection and verification means that all operations can be performed electronically, which makes it possible to save time, reduce costs for each deal participant, register and sign documents in real time and avoid errors in the signing of documents.
MegaFon CFO Gevork Vermishyan commented: “Following our issue of exchange bonds at a record low rate last week, we have become the first in Russia and one of the first in the world to place blockchain-settled commercial bonds. The deal exemplifies MegaFon’s efforts to demonstrate its leading role in the development of Russia’s digital economy. We see significant potential in blockchain, which is slowly but surely becoming the new standard for exchanging transaction data, replacing traditional systems of settlement. We are pleased to work with NSD and Raiffeisenbank to take the first steps on the path to the Russian securities’ market’s digital transformation. I want to thank the joint project team for making this successful breakthrough.”
“This milestone deal is the first important step in testing the broad spectrum of possibilities for the use of blockchain technology on the Russian securities market,” said Andrey Popov, Head of IT Directorate, Board Member at Raiffeisenbank. “Despite blockchain’s active development, the legislative framework in this area in Russia is only just being developed. The successful closing of this deal allows us to create a new legal environment in which all similar projects can be implemented on the Russian securities market in the future.”
“NSD was one of the first in Russia to adopt blockchain. The main driver for moving from prototyping to commercial use of this solution for us has been interest from clients and partners. MegaFon and Raiffeisenbank have proven to be innovative, responsive and technologically advanced in their approach, which is extremely important when implementing best practices,” said Eddie Astanin, Chairman of the Management Board at the National Settlement Depositary. MegaFon’s board of directors approved the bond issue on 28 August. NSD assigned a bond ID number on 20 September. It will be repaid on 22 December 2017.
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Notes to Editors
The National Settlement Depository (NSD), part of the Moscow Exchange Group, is the central securities depository* of the Russian Federation.
NSD was founded on 27 June 1996. On 30 June 2017, the value of securities under its custody amounted to RUB 35.5 trillion. The Central Bank of Russia has recognized NSD as a systemically important central securities depository, settlement depository and repository. The NSD payment system is classed as a systemically and nationally important system.
NSD offers a wide range of services to its clients, including: settlement and depository services, OTC transaction registration (repository services), information services and collateral management services. As Russia’s national numbering agency and the substitute numbering agency for the CIS, NSD is authorized to assign international ISIN and CFI codes. NSD has the status of a pre-Local Operating Unit (pre-LOU), which allows it to assign Legal Entity Identifiers (LEIs) to corporate clients. The Central Bank of Russia has assigned NSD the status of operator of the NSD Payment System (registered name).
NSD conducts all exchange settlements and a major part of OTC settlements, and also services Russian and foreign securities as the central securities depository. Currently, NSD has accounts with central securities depositories and international central securities depositories of eight countries, as well as correspondent accounts with major foreign and Russian banks. NSD services securities issued by companies representing more than 40 countries. The international rating agency Thomas Murray has assigned NSD an AA- rating as a central securities depository.
For additional information about NSD please visit www.nsd.ru/en.
*Central securities depository status was assigned to NSD by Russian Federal Financial Markets Services’ Order № 12-2761/PZ-I (dated 6 November 2012). NSD holds professional securities market participant license № 045-12042-000100 for depository operations issued by the Russian Federal Financial Markets Services (19 February 2009), license № 3294 for banking operations issued by the Central Bank of the Russian Federation (4 August 2016), license № 045-00004-000010 for clearing activities issued by the Russian Federal Financial Markets Services (20 December 2012), and license № 045-01 for repository operations issued by the Central Bank of Russia (28 December 2016).
MegaFon PJSC is a leading Russian integrated telecommunication service provider, operating in all segments of the telecommunications markets in Russia, and in the Republics of Abkhazia, South Ossetia and Tajikistan. MegaFon is a recognized market leader in the provision of mobile data services, was the first operator in Russia to launch commercial operation of a third generation (3G) network and was the first operator in the world to launch commercial operation of an LTE-Advanced (4G) data network. MegaFon is traded on the Moscow Exchange and the London Stock Exchange under the symbol MFON. Additional information about MegaFon and the products and services provided by MegaFon can be found at: http://www.megafon.ru.
AO Raiffeisenbank is a subsidiary of Raiffeisen Bank International AG. Based on its H1 2017 results Interfax-CEA ranks Raiffeisenbank 14th among Russian banks by assets. According to the same Interfax-CEA data, Raiffeisenbank ranked 10th in terms of liabilities of individuals and 7th in consumer lending.
Raiffeisen Bank International AG (RBI) is a leading corporate and investment bank on the financial markets of Austria and in Central and Eastern Europe (CEE). In CEE, RBI operates an extensive network of subsidiary banks and leasing companies and a range of other specialised financial service providers in 15 markets (including Austria). In total, more than 50,000 employees service 16.6 million customers through more than 2,400 business outlets, the majority of which are in CEE. Since 2005, RBI’s shares have been listed on the Vienna Stock Exchange. After the merger of RBI and its former majority owner Raiffeisen Zentralbank Österreich AG (RZB) in March 2017, the combined institute operates — as RBI did previously — under the name Raiffeisen Bank International AG. RBI took over all rights, obligations and duties of the transferring company (RZB).
Blockchain is a distributed ledger of the rights to bonds. It is transparent, resistant to cyber attacks and offers increased protection against forgery. The ledger contains a list of records, called blocks. Each block contains a cryptographically protected reference to the previous block.
Commercial bonds are a new OTC financial instrument introduced as part of efforts to “bondify” the Russian economy. NSD registered the first issue and commercial bond programme, executed using traditional centralized technologies, in summer 2016. The instrument has a number of undeniable advantages, including the unsecured nature of borrowing, the lack of requirements as to the borrower’s financial standing and length of time it has existed and the absence of restrictions as to the amount and timing of borrowing. Commercial bonds are placed by private subscription.
A digitized asset is a paperless form of financial market instrument, allowing it to be recorded in an electronic ledger. This project uses asset tokenization, which involves creating a special cryptographically protected token for each bond — essentially a digital version of proof of ownership of the bond. As such, the registration of rights to bonds is done directly in the blockchain.
Cryptographic protection ensures the confidentiality and controls the integrity and authenticity of information using a sufficient level of cryptography to protect against cyber attacks and other risks.
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